Opportunity Zone Reform Act

I 116TH CONGRESS 1ST SESSION H. R. 5042 To amend the Internal Revenue Code of 1986 to reform rules related to qualified opportunity zones. IN THE HOUSE OF REPRESENTATIVES NOVEMBER 12, 2019 Mr. CLYBURN (for himself, Ms. ADAMS, and Mr. CLAY) introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1986 to reform rules related to qualified opportunity zones. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Opportunity Zone Re- 4 form Act’’. 5 SEC. 2. MODIFICATION OF TRACTS QUALIFIED TO BE DES- 6 IGNATED AS QUALIFIED OPPORTUNITY 7 ZONES. 8 (a) DISQUALIFICATION OF CERTAIN CENSUS 9 TRACTS.— 10 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 2 •HR 5042 IH (1) CENSUS TRACTS WITH HIGH MEDIAN FAM- 1 ILY INCOME.—Paragraph (1) of section 1400Z–1(c) 2 of the Internal Revenue Code of 1986 is amended to 3 read as follows: 4 ‘‘(1) LOW-INCOME COMMUNITIES.— 5 ‘‘(A) IN GENERAL.—Except as provided in 6 subparagraph (B), the term ‘low-income com- 7 munity’ has the same meaning as when used in 8 section 45D(e). 9 ‘‘(B) EXCEPTION.— 10 ‘‘(i) IN GENERAL.—Such term shall 11 not include any census tract if the median 12 family income for such tract exceeds 120 13 percent of the national median family in- 14 come (as determined based the most recent 15 data published by the Bureau of the Cen- 16 sus on the date of the enactment of the 17 Opportunity Zone Reform Act). 18 ‘‘(ii) SPECIAL RULE.—Clause (i) shall 19 not apply to any census tract if— 20 ‘‘(I) the poverty rate for such 21 tract is at least 20 percent, and 22 ‘‘(II) less than 10 percent of the 23 population of such tract is enrolled in 24 an institution of higher education (as 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 3 •HR 5042 IH defined in section 101 of the Higher 1 Education Act of 1965).’’. 2 (2) CONTIGUOUS CENSUS TRACTS.—Section 3 1400Z–1 of such Code is amended by striking sub- 4 section (e) and redesignating subsection (f) as sub- 5 section (e). 6 (b) TREATMENT OF PREVIOUSLY DESIGNATED 7 TRACTS.—Section 1400Z–1 of such Code, as amended by 8 subsection (a)(2), is amended by adding at the end the 9 following: 10 ‘‘(f) TREATMENT OF CERTAIN CENSUS TRACTS.— 11 ‘‘(1) IN GENERAL.—Except as provided in sec- 12 tion 1400Z–2(d)(2)(D), any census tract (other than 13 a census tract in Puerto Rico) which is not a low- 14 income community and which was designated as a 15 qualified opportunity zone before the date of the en- 16 actment of the Opportunity Zone Reform Act shall 17 not be treated as a qualified opportunity zone on or 18 after such date of enactment. 19 ‘‘(2) REPLACEMENT ZONES.— 20 ‘‘(A) IN GENERAL.—A State may des- 21 ignate a low-income community as a qualified 22 opportunity zone to replace a census tract the 23 status of which as a qualified opportunity zone 24 was terminated by reason of paragraph (1). 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 4 •HR 5042 IH ‘‘(B) SPECIAL RULES.—For purposes of 1 this subchapter— 2 ‘‘(i) the determination period with re- 3 spect to a designation under subparagraph 4 (A) shall be the 90-day period beginning 5 on the date of the enactment of such Act, 6 as extended under subsection (b)(2), and 7 ‘‘(ii) the period for which any such 8 designation is in effect shall be the period 9 beginning with the date such designation 10 takes effect and ending with the last day 11 of the 10th calendar year beginning on or 12 after the designation date as a qualified 13 opportunity zone for the census tract 14 which it is replacing as such a zone by rea- 15 son of the termination under clause (i).’’. 16 (c) TREATMENT OF EXISTING INVESTMENTS.—Sec- 17 tion 1400Z–2(d)(2)(D) of such Code is amended by add- 18 ing at the end the following new clause: 19 ‘‘(iv) SPECIAL RULE FOR INVEST- 20 MENTS IN CERTAIN CENSUS TRACTS.— 21 ‘‘(I) IN GENERAL.—For purposes 22 of applying this paragraph, the use of 23 property in a qualified census tract 24 shall be treated as use of property in 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 5 •HR 5042 IH a qualified opportunity zone if the 1 original use of such property occurred 2 before November 6, 2019, or in the 3 case of property acquired before such 4 date, the property was substantially 5 improved before the close of the 30- 6 month period beginning with the 7 month of the acquisition. 8 ‘‘(II) QUALIFIED CENSUS 9 TRACT.—For purposes of this clause, 10 the term ‘qualified census tract’ 11 means any census tract which is not a 12 low-income community and which was 13 designated as a qualified opportunity 14 zone before the date of the enactment 15 of the Opportunity Zone Reform 16 Act.’’. 17 SEC. 3. MAINTENANCE OF GEOGRAPHIC BOUNDARIES OF 18 QUALIFIED OPPORTUNITY ZONES. 19 Section 1400Z–1(e) of the Internal Revenue Code of 20 1986, as redesignated by section 2(a)(2), is amended by 21 adding at the end the following new sentence: ‘‘Such des- 22 ignation shall apply to the geographic area as in effect 23 at the time such tract is designated without regard to 24 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 6 •HR 5042 IH whether adjustments are made to the boundaries of the 1 census tract so designated.’’. 2 SEC. 4. MODIFICATION OF PROHIBITION ON CERTAIN 3 TYPES OF TRADES OR BUSINESS AS QUALI- 4 FIED OPPORTUNITY ZONE BUSINESSES. 5 (a) IN GENERAL.—Section 1400Z–2(d)(3)(A)(iii) of 6 the Internal Revenue Code of 1986 is amended by striking 7 ‘‘in section 144(c)(6)(B)’’ and inserting ‘‘subsections 8 (a)(8)(B) or (c)(6)(B) of section 144 or section 147(e)’’. 9 (b) EFFECTIVE DATE.—The amendment made by 10 this section shall take effect on November 6, 2019. 11 SEC. 5. OTHER MODIFICATIONS RELATED TO QUALIFIED 12 OPPORTUNITY FUNDS. 13 (a) APPLICATION OF QUALIFIED OPPORTUNITY 14 ZONE BUSINESS RULES TO TRADES OR BUSINESSES 15 CONDUCTED BY QUALIFIED OPPORTUNITY ZONE 16 FUNDS.— 17 (1) IN GENERAL.—Section 1400Z–2(d)(1) of 18 the Internal Revenue Code of 1986 is amended to 19 read as follows: 20 ‘‘(1) IN GENERAL.—The term ‘qualified oppor- 21 tunity fund’ means any investment vehicle— 22 ‘‘(A) which is organized as a corporation 23 or a partnership for the purpose of investing in 24 qualified opportunity zone property (other than 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 7 •HR 5042 IH another qualified opportunity fund) that holds 1 at least 90 percent of its assets in qualified op- 2 portunity zone property, determined by the av- 3 erage of the percentage of qualified opportunity 4 zone property held in the fund as measured— 5 ‘‘(i) on the last day of the first 6- 6 month period of the taxable year of the 7 fund, and 8 ‘‘(ii) on the last day of the taxable 9 year of the fund, and 10 ‘‘(B) any trade or business of which is a 11 qualified opportunity zone business.’’. 12 (2) EFFECTIVE DATE.—The amendments made 13 by this subsection shall take effect as if included in 14 section 13823 of Public Law 115–97. 15 (b) CLARIFICATION OF SUBSTANTIALLY ALL.— 16 (1) IN GENERAL.—Section 1400Z–2(d) of the 17 Internal Revenue Code of 1986 is amended— 18 (A) by striking ‘‘during substantially all’’ 19 each place it appears in paragraphs 20 (2)(B)(i)(III), (2)(C)(iii), and (2)(D)(i)(III) 21 and inserting ‘‘for not less than 90 percent’’, 22 (B) by striking ‘‘substantially all of the 23 use’’ in paragraph (2)(D)(i)(III) and inserting 24 ‘‘not less than 90 percent of the use’’, and 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 8 •HR 5042 IH (C) by striking ‘‘in which substantially all’’ 1 in paragraph (3)(A)(i) and inserting ‘‘in which 2 not less than 90 percent’’. 3 (2) EFFECTIVE DATE.—The amendments made 4 by this subsection shall take effect as if included in 5 section 13823 of Public Law 115–97. 6 (c) CERTAIN PROPERTY EXCLUDED FROM QUALI- 7 FIED OPPORTUNITY ZONE BUSINESS PROPERTY.— 8 (1) IN GENERAL.—Section 1400Z–2(d)(2)(D) 9 of the Internal Revenue Code of 1986 is amended— 10 (A) in clause (i), by inserting ‘‘(other than 11 self-storage property, parking property, stadium 12 property, or disqualified residential rental prop- 13 erty)’’ after ‘‘tangible property’’, and 14 (B) by adding at the end the following new 15 clauses: 16 ‘‘(iv) SELF-STORAGE PROPERTY.—The 17 term ‘self-storage property’ means property 18 designed and used for the purpose of rent- 19 ing or leasing individual storage space to 20 occupants who are to have access to such 21 space for the purpose of storing and re- 22 moving personal property. 23 ‘‘(v) PARKING PROPERTY.—The term 24 ‘parking property’ means any property 90 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 9 •HR 5042 IH percent or more of the square footage of 1 which is used for parking or for the in- 2 gress or egress of vehicles. 3 ‘‘(vi) STADIUM.—The term ‘stadium 4 property’ means any facility (or appur- 5 tenant real property) which, during at 6 least 5 days during any calendar year, is 7 used as a stadium or arena for professional 8 sports exhibitions, games, or training. 9 ‘‘(vii) DISQUALIFIED RESIDENTIAL 10 RENTAL PROPERTY.—The term ‘disquali- 11 fied residential rental property’ means any 12 residential rental property unless 50 per- 13 cent or more of the residential units of 14 such property are both rent-restricted 15 (within the meaning of section 42(g)(2)) 16 and occupied by individuals whose income 17 is 50 percent or less of area median in- 18 come.’’. 19 (2) EFFECTIVE DATE.—The amendments made 20 by this subsection shall take effect as if included in 21 section 13823 of Public Law 115–97. 22 (d) TREATMENT OF LEASED PROPERTY.— 23 (1) IN GENERAL.—Section 1400Z– 24 2(d)(2)(D)(i)(I) of the Internal Revenue Code of 25 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 10 •HR 5042 IH 1986 is amended by inserting ‘‘or under a lease 1 (other than a lease from a related person) entered 2 into after December 31, 2017,’’ after ‘‘December 31, 3 2017,’’. 4 (2) EFFECTIVE DATE.—The amendment made 5 by this subsection shall take effect as if included in 6 section 13823 of Public Law 115–97. 7 (e) CORRECTION RELATING TO ORIGINAL USE OF 8 QUALIFIED OPPORTUNITY ZONE BUSINESS PROPERTY.— 9 (1) IN GENERAL.—Section 1400Z– 10 2(d)(2)(D)(i)(II) of the Internal Revenue Code of 11 1986 is amended by striking ‘‘in the qualified oppor- 12 tunity zone’’. 13 (2) EFFECTIVE DATE.—The amendment made 14 by this subsection shall take effect as if included in 15 section 13823 of Public Law 115–97. 16 (f) MODIFICATION OF DETERMINATION OF SUBSTAN- 17 TIAL IMPROVEMENT OF QUALIFIED OPPORTUNITY ZONE 18 BUSINESS PROPERTY.— 19 (1) IN GENERAL.—Section 1400Z– 20 2(d)(2)(D)(ii) of the Internal Revenue Code of 1986 21 is amended by inserting ‘‘(including land)’’ after 22 ‘‘adjusted basis of such property’’. 23 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 11 •HR 5042 IH (2) EFFECTIVE DATE.—The amendment made 1 by this subsection shall take effect as if included in 2 section 13823 of Public Law 115–97. 3 SEC. 6. PUBLIC LIST OF QUALIFIED OPPORTUNITY FUNDS. 4 The Secretary of the Treasury (or the Secretary’s 5 delegate) shall maintain and make publicly available on 6 the internet and at the offices of the Internal Revenue 7 Service— 8 (1) a list of investment vehicles that are cer- 9 tified as qualified opportunity funds (as defined in 10 section 1400Z–2(d)(1) of the Internal Revenue Code 11 of 1986) pursuant to the rules established under 12 section 1400Z–2(e)(4)(A) of such Code, and 13 (2) the name, address, and the uniform re- 14 source locator (URL) for the website for such fund. 15 SEC. 7. GAO REPORT. 16 (a) IN GENERAL.—Not later than each applicable 17 date, the Comptroller General of the United States shall 18 submit to Congress a report on the effectiveness of the 19 provisions of subchapter Z of chapter 1 of the Internal 20 Revenue Code of 1986 in achieving the policies of such 21 provisions. 22 (b) MATTERS INCLUDED.—The reports submitted 23 under subsection (a) shall include an analysis of— 24 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 12 •HR 5042 IH (1) the distribution of investments of qualified 1 opportunity funds among qualified opportunity 2 zones, 3 (2) the distribution of such investments across 4 different industries or investment purposes, 5 (3) the impact of the designation of an area as 6 a qualified opportunity zone on— 7 (A) economic indicators, including employ- 8 ment, new business start-ups, and poverty re- 9 duction, 10 (B) housing costs, and 11 (C) income distribution among residents of 12 such zones, 13 (4) the economic benefits provided by such des- 14 ignations compared to economic costs, and 15 (5) to the extent practicable, the impact of the 16 provisions of such subchapter Z on low-income com- 17 munities that have not been designated as qualified 18 opportunity zones. 19 (c) DEFINITIONS.— 20 (1) APPLICABLE DATE.—The term ‘‘applicable 21 date’’ means— 22 (A) the date that is 5 years after the date 23 of the enactment of this Act, and 24 VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H5042.IH H5042 pamtmann on DSKBC07HB2PROD with BILLS 13 •HR 5042 IH (B) the date that is 10 years after the date 1 of the enactment of this Act. 2 (2) OTHER TERMS.—Any term used in this sec- 3 tion which is also used in subchapter Z of chapter 4 1 of the Internal Revenue Code of 1986 shall have 5 the meaning given such term under such subchapter. 6 Æ VerDate Sep 11 2014 03:38 Nov 22, 2019 Jkt 099200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6301 E:\BILLS\H5042.IH H50 [Text truncated for display. 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